Look backward and forward for tax savers

April 4, 2013

You can reach into the past and future to cut your taxes. How? Through the use of tax carryforwards and carrybacks. Here is what you should know about these tax savers.

Some tax deductions have a maximum amount that you can use in any one year. In these situations, the rules generally allow you to apply the unused tax deduction to a past or future tax return. One of the most popular examples of this is the “net operating loss” or NOL. Business owners whose qualified expenses exceed their income are allowed to apply the NOL to taxable income earned in the second prior year, and if there is still loss available, to apply it to last year’s income. Any further unapplied NOL can be used to offset future taxable income.

But there are a few twists to the NOL rules. If your NOL is the result of a theft or disaster, you may be able to carry it back three years. An NOL from farming can be carried back five years. And you may opt to apply all your NOL to future years only, which might not be a bad strategy if you expect to be taxed at higher rates in future years.

Net capital losses, such as from the sale of stocks, can be carried forward (but not back) to offset future capital gains and up to $3,000 of ordinary income. You can also carry forward charitable contributions that exceed 50% of taxable income for up to five years.

It’s important to save all records related to carryback and carryforward deductions for at least three years after the year they are applied. If you have any questions about your potential for tax carryback and carryforward deductions, contact our office. We’ll help you keep an eye on your tax situation, past, present, and future.

Leave a Comment » | March 2013 | Tagged: , , , , , , | Permalink
Posted by gillilandcpa

Depreciation rules change for 2012

February 28, 2012

If you’re planning to buy equipment or other business assets this year, you need to be aware of the changes in how much of the cost you can deduct in 2012.

 Here are the new limits.

 * Bonus depreciation. The enhanced deduction — up to 100% of qualified assets — expired at the end of 2011. The maximum bonus depreciation allowance for most qualified property placed in service in 2012 is 50% of the cost of the property.

 Bonus depreciation is generally available for new assets that have a useful life of 20 years or less.

 * Section 179. The expanded $500,000 Section 179 write-off that has been available for the past two years ended December 31, 2011. For 2012, you can elect to expense up to $139,000 of qualified assets you purchase during the year.

 To receive the full benefit of the Section 179 deduction, the total cost of all qualifying assets purchased in 2012 must be $560,000 or less. Your deduction may also be limited by the amount of your business income.

 Both new and used assets qualify for Section 179.

 Congress may change these rules at any time. If you’re thinking of purchasing assets for your business this year, please give us a call for the latest depreciation developments.

Leave a Comment » | February 2012 | Tagged: , , , , , | Permalink
Posted by gillilandcpa

Check your income level and tax breaks

November 8, 2011

Check into all the tax credits and deductions for which you might qualify this year. Because some of these tax breaks are reduced or eliminated entirely once your income reaches certain limits, you need to be aware of the income phase-out thresholds for those credits and deductions. While it doesn’t make sense to make less income just to qualify for a tax break, shifting income from one year to another may sometimes be a smart thing to do.

Leave a Comment » | November 2011 | Tagged: , , , , | Permalink
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Mistakes can be corrected

April 26, 2011

Has this ever happened to you? You rush to get your income tax return in the mail only to discover a deduction you overlooked. Or you receive a corrected year-end statement for one of your investments a week after you dropped your return in the mail. Well, the good news is that you can correct your return for up to three years after you file your original return.

Oversights and errors are not uncommon, so the IRS provides a way for you to correct them. You need to tell the IRS why you are correcting the return, and include the appropriate attachments, such as a corrected Form W-2, with your amended return.

Filing an amended return doesn’t extend the time the IRS has to examine your returns unless your original or amended returns were fraudulently filed. The IRS generally has three years from the date your original tax return was due or from the time it was filed to examine your returns (both original and amended) and to adjust your tax. If your amended return is properly prepared, your chances of being audited are probably no greater than they were on your original return.

You should consider the size of the refund or balance due before you rush to amend your return. In other words, a $25 refund would probably waste more of your time than it is worth.

If you’ve discovered income or deductions that you should have reported on your income tax return, give us a call. We can help you set the record straight and pay only the tax actually due.

Leave a Comment » | April 2011 | Tagged: , , , | Permalink
Posted by gillilandcpa

Don’t overlook tax-saving deductions

March 4, 2011

If you itemize deductions on your tax return, every additional deduction you find will save you money. In the past, higher-income taxpayers had their itemized deductions limited. Effective for 2010, 2011, and 2012 tax returns, there is no income-based reduction in total itemized deductions. That may give higher-income taxpayers another reason to track their deductions carefully.

Here’s a sampling of often-missed deductions.

* Disaster losses not reimbursed by insurance.

* Job-hunting travel and telephone expenses.

* Employment agency and job counseling fees.

* Costs for resume preparation.

* Union or professional association dues.

* Specialized work clothing or small tools used at work.

* Points paid by you on a new home loan.

* Home mortgage points paid by a seller on your behalf.

* Points paid on refinancing your home mortgage (deductible pro rata over the life of the loan).

* Remaining undeducted points on a prior refinancing when you refinance again.

* Your actual expenses or 14¢ a mile for driving in doing charitable work.

* Gambling losses, but only to the extent of your winnings.

* Fees paid for the preparation of your tax return.

For assistance in identifying all the deductions to which you are entitled, contact our office. We are here to help you pay the lowest tax allowed under the law.

Leave a Comment » | March 2011 | Tagged: , , , , , | Permalink
Posted by gillilandcpa

Don’t overlook these deductions; they’re available even if you don’t itemize

February 22, 2011

You’re probably familiar with the deduction choice you must make when you file your tax return. You either have enough deductions (such as mortgage interest, charitable contributions, and medical expenses) to itemize, or you take the standard deduction, a set amount that doesn’t require you to list specific deductible items.

What you may not be as familiar with are those deductions that you are allowed to take “above the line”; that is, deductions that you can take in addition to your itemized deductions or the standard deduction.

Here’s a quick rundown of above-the-line deductions you shouldn’t overlook when you prepare your 2010 tax return.

* A deduction of up to $250 for classroom supplies purchased by teachers for use in their classrooms.

* A deduction of up to $5,000 for individual retirement account contributions if you’re under age 50. If you’re 50 or older, you can deduct up to $6,000.

* A deduction of up to $2,500 for interest paid on student loans.

* A deduction of up to $2,000 or $4,000 for college tuition and fees, depending on your income level.

* A deduction for the expenses connected with a job-related move.

* A deduction for 50% of the self-employment tax paid if you are self-employed.

* A deduction for alimony paid. (Note that child support is not deductible.)

* A deduction for contributions to health savings accounts.

Most of these deductions have qualification requirements or income limitations. Don’t overlook above-the-line tax deductions. An added benefit: These deductions decrease your “adjusted gross income,” an important number on your tax return. The lower your adjusted gross income, the more likely you are to qualify for credits and deductions subject to income thresholds. For details or assistance in finding all the deductions you’re entitled to, give us a call.

Leave a Comment » | February 2011 | Tagged: , , , , , | Permalink
Posted by gillilandcpa

Delayed tax returns can be filed starting February 14

February 1, 2011

Taxpayers who itemize deductions, claim the educator expense deduction, or claim a deduction for tuition and fees were told by the IRS not to file their 2010 returns until the IRS had reprogrammed its computers to handle these late-2010 changes.

The IRS has just announced the filing start date for these returns: February 14, 2011. On that date, the IRS will begin processing paper and e-filed returns claiming any of these deductions.

Leave a Comment » | February 2011 | Tagged: , , , , | Permalink
Posted by gillilandcpa

The coming sunset affects more than tax rates

December 3, 2010

Unless Congress acts soon, the “2001 Tax Act” will expire at the end of this year, bringing back pre-2001 tax rates and rules. While the current discussions focus on the income tax rates that will rise if the law is allowed to expire, there are dozens of other major changes that will sunset too.

Here’s a quick overview of what 2011 will bring unless Congress intervenes.

* The limitation on itemized deductions based on income will be reinstated in full.

* The phase-out of the deduction for personal exemptions for higher-income taxpayers will be reinstated in full.

* Married couples filing a joint return will not be entitled to twice the standard deduction amount allowed for single taxpayers. Nor will couples get the 15% tax rate on twice the amount of income as single taxpayers get. The marriage penalty, in other words, is back to pre-2001 levels.

* The child tax credit and the dependent care credit will revert to pre-2001 levels.

* The maximum rate for capital gains will revert to 20%, and dividends will be taxed at ordinary income rates as high as 39.6%.

* Among the changes to education tax breaks, the annual contribution to Coverdell education savings accounts will revert to $500.

* The estate tax will return with a maximum rate of 55% and an exclusion amount of $1 million.

Your tax planning, as challenging as it already is, should take these potential changes into account. For guidance in your year-end planning, give us a call.

Leave a Comment » | December 2010 | Tagged: , , , , , , | Permalink
Posted by gillilandcpa

Be tax smart with your vacation home

July 20, 2010

You can enjoy a vacation home and cut your taxes – with some careful planning and a little discipline.

The IRS rules can be complex and potentially restrictive, so a word of caution is in order as you plan the use of your vacation home.

Owners of vacation homes often rent out the property when they’re not using it themselves. Renting out your vacation home may or may not make sense for you. The principal variables are the number of days you rent the property, the number of days of personal use, your individual tax situation, and your personal wishes for the use of your vacation home.

* Rent for 14 days or less and a simple tax break is available. If you rent your vacation home for 14 days or less, all of the rental income is tax-free. This attractive tax benefit can help provide cash for your mortgage and other expenses.

* Rent for more than 14 days and your tax planning and personal life become more complex. If you rent your vacation home for more than 14 days, all your rental income is reportable. Whether you treat the income and expenses as a second residence or as rental property depends on the personal use of your vacation home relative to the time the home is rented out. This test is made annually and determines the nature of deductions and the tax treatment if the vacation home is sold.

Please call us to guide you through the IRS rules to find the rental strategy that meets your financial goals yet ensures the personal enjoyment of your vacation home.

Leave a Comment » | July 2010 | Tagged: , , , , , | Permalink
Posted by gillilandcpa

Do some midyear planning if you want lower taxes for 2010

July 13, 2010

Summer’s here, and probably the last thing on your mind is tax planning. The problem is that if you wait until December, there’s little time for changes to take effect. But if you take the time to plan now, you still have six months for your new tax strategies to make a difference on your 2010 tax return. So set aside some time for tax planning. Begin by pulling out your 2009 income tax return.

* Review your income and deductions. Did you lose any credits or deductions because your income was above a certain threshold amount? If so, what can you do to keep this year’s income below the threshold?

* Evaluate your investment portfolio. By now you should have an idea whether you’ll be selling any investments this year. Taking losses by pruning your portfolio can be an effective way to manage income.

* Build a retirement fund and cut taxes too. Take advantage of the deductible contributions allowed for IRAs, SIMPLEs, SEPs, and 401(k) plans, especially if you’re 50 or older.

* Check out education tax breaks. If you or your children are in college, review the education tax breaks that are available. Among the breaks: a deduction for student loan interest, education savings accounts, Section 529 plans, and the Hope and lifetime learning tax credits.

* Don’t overpay your taxes. Finally, if you received a large refund on last year’s taxes, consider reducing your withholding for this year. To adjust your withholding, file a new Form W-4 with your employer.

If you’d like to sit down together to discuss tax-cutting strategies that fit your individual situation, please call us.

Leave a Comment » | July 2010 | Tagged: , , , , , | Permalink
Posted by gillilandcpa

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